Report: California film tax credit a good investment

The Park Plaza Hotel in downtown offers a location setting for the Warner Bros. movie "Gangster Squad", which received a California film tax credit.

The Park Plaza Hotel in downtown offers a location setting for the Warner Bros. movie "Gangster Squad", which received a California film tax credit. (Wilson Webb / Wilson Webb/Warner Bros.)

Richard Verrier

A new report from the nation's largest metropolitan planning organization says California's film and television tax credit program is a good investment, but needs to be extended and restructured to keep the entertainment industry from fleeing the state.

The state film incentive program generated an 11% return on investment in its first three years and helped generate $4.3 billion in economic activity and 22,300 jobs, according to a study released Thursday by the Southern California Assn. of Governments.

Since 2009, California has been allocating $100 million annually to film and TV productions, using a lottery system to award 20% to 25% tax credits as an inducement to keep their business in the state.

In the first three years of funding, 109 film projects were funded and completed. Those projects, which included the feature films "The Social Network,""Bridesmaids" and "We Bought a Zoo," combined generated $247.7 million in state and local taxes and $1.6 billion in labor income, according to the report.

For every $1 of tax credit issued, $1.11 was returned to the state and local governments in the form of tax revenue, and total state gross domestic product increased by $9.48, the study concludes.

"You cannot look at this program and not see it as a formidable economic and fiscal benefit,'' said Hasan Ikhrata, SCGA executive director. "California is very much at risk of losing its film industry, and without this program the past five years, the losses would have been more painful."

The effectiveness of the incentive program has been hotly debated. A coalition of industry and labor groups has been waging a campaign to support legislation that would expand and broaden the incentive so that California can more effectively compete with rivals in New York; Georgia; Louisiana; Vancouver, Canada; and London.

As with other recent reports, including one from the Milken Institute, the SCAG study highlights the erosion of California's homegrown entertainment industry, noting that last year alone 75% of the 41 live action feature films with budgets in excess of $75 million were filmed outside of California.

The loss of big budget pictures cost California $410 million in state and local tax revenue, 47,600 jobs and total economic output of $9.6 billion, according to the study, which was conducted by the Los Angeles County Economic Development Corp.

"It is not hyperbole to assert that the state is losing jobs to other states and nations and is continuing to bleed out at an increasing rate," writes the LAEDC's Christine Cooper, the principal author of the research.

To help bring back more production, the SCAG report recommends various improvements, including lifting the current $75-million budget cap on films that may qualify for the incentive and offering a subsidy targeting the visual effects industry.

The LAEDC authored a similarly positive appraisal of California's film tax credit in 2011, although that study was perceived by some critics as being biased because it was commissioned by the Motion Picture Assn. of America, the lobbying arm of the major studios.

Some state lawmakers have questioned the costs of the program, citing a study by the state's legislative analyst's office that said the program caused a net loss in state revenue. A study by UCLA found the program had a more modest return on investment, generating $1.04 in tax revenue for every $1 allocated in tax credits.